Explain why the monopsonist's marginal-revenue-product curve is downward sloping. Include the role of the price for...

Explain why the monopsonist's marginal-revenue-product curve is downward sloping. Include the role of the price for the final good or service in your answer.

I know that The monopsonist's marginal-revenue-product curve is downward sloping because of the law of diminishing returns, but how can tie back to the price for the final good or service?

Expert Solution

The MRP Curve is also the demand curve.The role of the price is because the MRP curve is the same MRP numbers as in the total inputs that create the total output. The downward-sloping portion of the marginal revenue product curve shows the number of employees a company will hire at each price (wage), so we can interpret this part of the curve as the firm’s demand for labor. As with other demand curves, the market demand curve for labor is the sum of all firm’s individual demand curves.

Because the MRPL is equal to the marginal product of labor times the price of output, any variable that affects either MPL or price will affect the MRPL. For example, changes in technology or the quantity of other inputs will change the marginal product of labor, and changes in the product demand or changes in the price of complements or substitutes will affect the price of output. These will all cause shifts in the MRPL.

Rahul Sunny answered 2 years ago

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